Dec 3. Party on Garth

–Markets have embraced detente between US and China, with rallies in stocks, oil, gold.  Both sides can claim progress as a ‘growth win’.  USD slightly weaker but a move to higher rates underpins the greenback.
–Brainard speaks today on Treasury Market Structure at 10:30.  Possible clues about ongoing QT.
–New lows in all near ED calendars on Friday with EDZ8/Z9 at 22.75 as EDZ8 continues to see pressure.  New low print this morning at 9718.75.  The market continues to price the December FOMC for a hike, but March is now perhaps under 50% depending on IOER, with Feb/April FF having closed at 11 bps.
–There’s underlying hope that an end to Fed tightening coupled with an easing of trade tensions will right the ship of global growth.  However, the red to green eurodollar pack spread remains negative, at -3.0 on Friday, signifying steady to lower rates in  2021.  This spread hasn’t been above +1 bp since the middle of summer.  The dollar curve is NOT ready to jump on the growth and inflation bandwagon.  Red, green, blue and gold ED packs are all within 4 bps of 97.00 or 3%.  No matter what the Fed dots project, the euro$ curve is forecasting a terminal FF rate of around 2 5/8 to 2 3/4%.  As of the September FOMC, the 2020 dot plot showed 6 (majority) at 3.625% and 12 between 3.125% and 3.625%.  The ED curve will not buy into it.
–Powell was scheduled to speak Wednesday but stocks and rates are closed.  Employment data on Friday.

Posted on December 3, 2018 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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